Restaurant owners learn lesson from last oil boom

Sara HigginsMidland Reporter-Telegram

Published 6:00 pm, Wednesday, March 2, 2011

Too much of a good thing could have Midland area employers scrambling to hold onto workers if history repeats itself.

As unemployment rates decrease and oil prices continue to climb, Midland is leading the state in recovering from the recession, according to Karr Ingham, the Amarillo economist who prepares the Midland-Odessa regional economic index for Midland and Odessa development corporations and the Reporter-Telegram. But when crude oil prices reached up to $147 and unemployment in Midland dipped below 3 percent during the summer of 2008, the tight labor market created panic among local employers. Restaurant owners said they were forced to shorten their hours, and some had to close parts of their stores because of lack of employees.

"I remember going into the restaurants and parts being closed because they didn't have enough servers," said Basic Energy CFO Alan Krenek.

Some employees, restaurant owners said, went to work in the oil patch, which also was experiencing a labor shortage; others left for competitors when employers couldn't keep up with the boom's ensuing wage war. Though the oil and gas sector generally looks for people already certified to work in the field, Krenek said that when the labor pool gets tight, businesses begin looking to train new employees. When restaurant employees began to realize how much money they could make in the oil patch, owners and managers struggled to pay valuable workers enough to stick around.

"It was horribly difficult," said Brett Norwich, Permian Basin franchise owner of Jack-in-the-Box. Norwich said he was still in the process of hiring staff for a new location at the peak of the oil boom.

"At its highest we were paying employees up to 50 percent (more than) we would normally pay," he said.

JumBurrito owner Jose Cuevas said at the height of the boom he would hire five to 10 employees, and none would show up for their first day of work after training.

Because of a lack of reliable employees, Cuevas said he had to shut down his location on Wadley at 3 p.m. every day for three months, and ultimately fired 21 of 24 employees to rebuild a better staff.

"We could not find anybody to work; we really were having to pay top wages and there were times we couldn't even open parts of the restaurant," said Jerry Morales, owner of Gerardo's Casita.

Norwich also cited turnovers as a hurdle when he opened up a new Jack-in-the-Box in March 2008.

"Within the first four weeks, we had almost a 100 percent turnover of employees," he said. The company's corporate office in El Paso sent a core group of employees to help rebuild the Jack-in-the-Box, and paid the rent on their apartments.

"We endured a huge expense to do that," he said. "We also brought in another manager from El Paso who was working the restaurant, and another neighborhood restaurant person came over and offered her $90,000 to leave."

Sam Lawson, owner of Burger King and Popeye's locations in Midland, said that he gave out 2,000 W-2 forms at the end of 2008, when at any given time he had 300 employees on the payroll. At times, he was down to a total of 180 employees on staff.

When oil and gas sector businesses looked to develop new employees, they also were met with high turnover rates.

"The turnover is quite high in entry levels," Krenek said, citing extreme weather and long hours as deterrents for new employees. "People think they want to do it and get to the job site and quickly decide that they either like it or don't like it. More people don't like it than like it."

Wage inflation also was a common problem within the oil industry, according to Krenek.

"You look at who's working for your competitors, and that's what starts the wage inflation," he said.

Though Ingham said the economy in Midland is recovering quickly, he added that he believes there is still a good amount of slack in the labor market since unemployment rates still haven't dropped to pre-recession levels.

Nevertheless, restaurant owners and oil executives alike said they already are seeing some signs of trouble.

"There are still people available, but it's quickly becoming harder to find people to fill spots," Krenek said. "Labor is going to be our biggest issue."

Norwich said he begins seeing employees get restless once crude oil is more than $80 per barrel.

"We're starting to see the effects of an oil boom again," he said. "It's not nearly as bad as last time. It's manageable up to $100 a barrel; at that point we need to start paying employees more -- at least that's what we experienced."

This time around, restaurant employers said they are prepared from their experiences in 2008.

"We're happy the oil and gas industry is doing well," Morales said. "But when we start seeing oil prices creep up we keep telling our employees that this is a consistently stable business to be in."

Norwich said he also is happy to see unemployment at 4.9 percent, but he hopes it doesn't get much lower than that for economic reasons.

"If unemployment gets above 6 or 7 percent, that's more than we want in our communities," Norwich said. "You want people to be working, everybody does. But there's a sweet spot; 5 to 5.5 is really good. 4.9 is heading into the zone where you can't find good employees."

Cuevas said there is no doubt in his mind that history will repeat itself as oil prices climb and more high-paying jobs are created in the oil patch.

"We had a lot of our male employees leave in 2008," the JumBurrito owner said. "I fully anticipate that some people will go back to work for our competitors or try another career."

Cuevas also mentioned that he didn't plan to wait for another wage war to begin and already has begun giving incentives to his best employees.

Lawson recalled how a very public wage war hurt all restaurants.

"We started putting wages out on our board," he said. "I would say 80 percent of it probably was us causing our own grief because we didn't get together and say 'No, we're not doing this.' We were battling each other and oil businesses were coming in handing out business cards."

Midland Development Corporation President Mike Hatley said though the oil patch took away employees from other businesses in 2007 and 2008, Midlanders should think of that situation as the sign of a strong economy.

"We here at the Midland Development Corporation are trying to help that by recruiting folks with skills to take a look at Midland and look at the possibility of applying their skills in the area that are needed," Hatley said, mentioning that one of the corporation's largest recruiting demographics is people exiting the military. He said he hopes to recruit employees in sectors that will balance out Midland's economy.

"Creating these bubbles that burst is not a good long-term strategy," he said, adding that Midlanders should be hopeful overall about the economy. "We see kind of a rosy outlook for our economy here not everybody's enjoying that nationwide."

In a successful market and with lessons under their belts, Cuevas said restaurants are looking ahead with hope.